Airlines Take Legal Action To Stop $3.4 Billion In Loan Guarantees To Air
India

NEWSROOM

Airlines Take Legal
Action To Stop $3.4 Billion In Loan Guarantees To Air India

By
Mike Mitchell

November 17, 2011 - The Air Transport Association of
America (ATA), the industry trade organization for the
leading U.S. airlines, filed suit against the
Export-Import Bank of the United States (Ex-Im Bank) to
halt a pending deal for $3.4 billion in loan guarantees
for aircraft financing to Air India, saying that it
fails to meet statutory requirements, including
consideration of the impact on the U.S. airline industry
and U.S. airline jobs.

Air India is the flag carrier airline of India. It is
part of the government of India owned Air India Limited
(AIL). The airline operates a fleet of Airbus and Boeing
aircraft serving Asia, Australia, Europe and North
America. Air India has the fourth largest share in
India's domestic air travel market, behind Jet Airways,
Kingfisher and IndiGo

.

The
Ex-Im Bank recently approved $1.3 billion in U.S.
taxpayer-backed loan guarantees for Air India, and is
considering an additional $2.1 billion in loan guarantees, to
support the purchase of 30 aircraft, including 27 Boeing 787s
for delivery between 2011-2015.

In a suit
filed with the U.S. District Court of the District of Columbia,
ATA asked the court to find the Air India loan-guarantee
commitments unlawful, to prevent the loan guarantees from being
issued, and to order injunctive relief requiring the Ex-Im Bank
to comply with its statutory obligations.

The
lawsuit follows an ATA letter to the Ex-Im Bank earlier this
month, which said that loan guarantees to Air India and other
foreign carriers fail to comply with specific statutory
mandates, including consideration of the impact from such
financings on U.S. industry and jobs, and ensuring that the
underlying loans have reasonable assurance of repayment. U.S.
taxpayers could be left to foot the bill for any default by a
foreign carrier on its loans.

ATA
asserted that the practices of Ex-Im Bank put U.S. carriers at a
commercial disadvantage to foreign carriers. Specifically, the
U.S. loan guarantees enable foreign carriers to obtain financing
for aircraft at considerably lower rates, in some cases up to 50
percent lower, than what U.S. airlines must pay on the
commercial market.

Having
received more than $52 billion in U.S. taxpayer-funded loan
guarantees over the last 10 years, foreign carriers have added
capacity and gained market share. Lower financing costs have
allowed foreign airlines to add 12 percent more capacity on
U.S.-international routes than they would have without Ex-Im
Bank guarantees. That overcapacity already has crowded out U.S.
airlines and forced some carriers to cut routes.

A reduction in
capacity means fewer U.S. airline jobs. Ex-Im Bank guarantees to foreign
carriers have forced U.S. airlines to cut between 4,100 and 7,500 jobs,
costing employees $372 million to $684 million in lost income.

?This
is yet another example of the U.S. government failing to recognize the
contribution of the U.S. airline industry to our economy and jobs growth
by creating an environment that favors foreign competitors over domestic
carriers,? said ATA President and CEO Nicholas E. Calio.

?While we support
the goal of expanding U.S. exports, it cannot come at the expense of
U.S. companies and U.S. jobs. Commercial aviation in the United States
drives $1.2 trillion per year in economic activity and more than 10
million jobs; we cannot do that if we continue to face a harsh and
punitive tax and regulatory environment that, along with this proposed
action, puts us at a competitive disadvantage. It?s time to level the
playing field.?

Calio said the
administration is also considering tripling the aviation security fee
over the next five years and adding a $100 departure tax to every
flight. Together, these would add $36 billion in taxes to carriers over
the next 10 years. The airline industry lost $55 billion between
2001-2010 and 160,000 jobs, one-third of its work force.

?We believe that
it is time for Ex-Im Bank to revise its practices and consider the
impact on the U.S. airline industry and its employees. We repeatedly
have sought additional information about the timing and details of the
Air India delivery but the Ex-Im Bank has refused to provide it. ATA has
no choice but to seek judicial intervention in order to prevent our
members from suffering irreparable injury,? Calio said.

As of March 2011,
Air India has accumulated a debt of $10. The carrier has been having
difficulty in making payroll and interest payments and Moody?s Investor
Service has warned that missing payments by Air India to creditors, such
as the State Bank of India, will negatively affect the credit ratings of
those banks.

A report by the Comptroller and Auditor General (CAG)
blamed the February 2011, merger with Air India and
Indian Airlines and the decision to buy 111 new planes
as the major causes of the debt troubles in Air India.